By Kerry Curry
January 13, 2011
Lenders who abandon foreclosed properties are an increasing concern in Chicago where thousands of vacant homes are threatening the stability of neighborhoods, says a report released Thursday by Woodstock Institute.
Administrative costs of dealing with vacant properties, from securing them to demolishing them, will cost Chicago an estimated $36 million, the report said.
The servicer — the typical steward of a property in foreclosure — may choose to reduce the costs associated with a long-term vacant home by walking away from the foreclosure process instead of completing it, according to the Chicago-based Woodstock Institute, a nonprofit that advocates for low-income persons and minority neighborhoods on issues such as fair lending and financial reform.
Abandoning foreclosures lowers property values, attracts criminal activity and causes blight, the report said.
Woodstock said it found 1,896 "red flag" homes in the city, according to the report. It defines a red flag home as a property on the vacant buildings index where a foreclosure has been filed between 2006 and the first half of 2010 with no clear outcome such as a completed foreclosure auction or property transfer.
"Over 40% of these red flag homes have been in the foreclosure process for more than a year and a half, which means their loan servicers have likely decided not to complete foreclosure," Woodstock said.
But sometimes the process just takes a very long time. Bank of America Chief Executive Brian Moynihan told investors during the third-quarter conference call that borrowers who received a foreclosure filing in the third quarter were delinquent on their mortgage for an average of 560 days.
The report analyzed data maintained by the city on vacant properties, foreclosure filings, foreclosure auctions and property transfers. It also found 2,558 REOs that likely are vacant but not registered with the city, representing more than 57% of the inventory of lender-owned homes in the city as of the third quarter of 2010.
At the end of the third quarter, 6.3% of the residential addresses in Chicago were categorized as vacant for 90 days or longer by the U.S. Postal Service. Of the vacant addresses, 55.8% had been vacant for one year or more.
Servicers were not immediately available to comment on the report. Several of the nation's biggest banks were named as key offenders associated with potential abandoned foreclosures in the Windy City.
The report recommends keeping homes occupied by pursuing loan modifications where applicable and said state and federal regulators should hold servicers accountable to implement strategies to limit the damage that vacant homes cause on neighborhoods.
The nonprofit also wants more data sharing to increase information and enforcement on vacant buildings.